Microsoft-Nokia Launches Cheap Lumia Phones For Price Sensitive Consumers

Microsoft (NASDAQ:MSFT) acquired Nokia’s devices and services unit for $7.2 billion in a transaction that closed last April.  At the ongoing IFA event in Germany, Microsoft leveraged the acquisition with the planned launch of three new smartphones in the coming months. Microsoft has announced two new Lumia smartphones  – Lumia 435 and Lumia 532   that are powered by its Windows Phone 8.1 mobile OS and will beefing up its portfolio at the lower end of the price spectrum. ^[1] These phones are targeted at emerging markets, which are currently dominated by budget Android phones . The prices for these new phones have been pegged at $80 for Lumia 435 and $90 for Lumia 532.  In this article, we will explore how these launches fit into Microsoft’s strategy to boost its revenues.

See our complete analysis of Microsoft here

Expected Phone Price Targets Developing Markets

Unlike developed countries, where smartphone penetration is above 50%, it is below 25% in many developing countries. While the adoption of smartphones in developed countries fueled the first wave of global growth, strong demand in emerging markets will drive the next phase. Currently, the sale of sub-$100 smartphones is prevalent in emerging countries, and we believe that with the availability of smartphones offering better functionality, smartphone adoption and penetration can rise.

According to IDC, global smartphone shipments are on the rise and set to surpass the 1.2 billion unit mark this year. ^[2] In Q2 2014, smartphone sales edged past the 300 million mark with substantial growth in sub-$200 smartphones. ^[3] High smartphone growth is the result of a variety of factors including steep device subsidies from carriers in developed countries, as well as a growing array of sub-$200 smartphones. Additionally, Reportbuyer.com forecasts smartphone shipments to grow to 3.9 billion by 2018. ^[4]

Despite the expected increase in smartphone shipments, the expected shipment figure in emerging regions such as Asia-Pacific will be less than 50%. We believe this presents an excellent opportunity for smartphone manufacturers that have a sizable market share in these regions. To capitalize on this opportunity, Microsoft, which has rights to market new smartphones under Nokia’s brand name, is launching upgrades to its existing line of Lumia 4 and 5 series phones. By doing so, Microsoft hopes to capture a bigger chunk in the highly competitive emerging markets as Nokia’s brand name is still widely recognized in these countries. Currently, Windows phones’ share in the smartphone market is 2.5%. ^[5] If Microsoft can increase its market share to 10% by launching feature rich but cheaper smartphones, which have an average cost of $100, it can generate $38 billion in revenues by 2018.

We have $44.46  price estimate for Microsoft, which is in line with the current market price.

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1. Microsoft Lumia 435 and Lumia 532: the most affordable Lumia devices to date, January 14 2014, www.microsoft.com [↩]
2. Worldwide Smartphone Market Grows 28.6% Year Over Year in the First Quarter of 2014, April 30 2014, www.idc.com [↩]
3. Worldwide Smartphone Shipments Edge Past 300 Million Units in the Second Quarter; Android and iOS Devices Account for 96% of the Global Market, August 14 2014, www.idc.com [↩]
4. The Smartphone markets: worldwide trends, forecasts and strategies 2014-2018, May 2014, www.reportbuyer.com [↩]
5. Smartphone OS Market Share, Q2 2014, www.idc.com [↩]